Bankruptcy filing sets dangerous precedent

By filing for bankruptcy protection under Chapter 11 earlier this month, the Portland, Ore., archdiocese effectively placed ultimate authority for every significant aspect of its business affairs with a federal bankruptcy court. In other words, with the government. This is a dangerous and unwelcome precedent, though not totally unexpected or unwarranted.

The consequences of this unprecedented step started to become clear at a July 14 hearing. The archdiocese had to petition the court for the right to pay its employees. The benevolent federal bankruptcy judge said they could, demonstrating that this northwestern church now relies on such munificence to manage even its most routine administrative affairs.

One other consequence of the filing could be the public release of documents that would give Catholics a fuller look at the conduct of church officials in handling the sex abuse crisis.

Archbishop John Vlazny said he had no choice but to seek protection from creditors. In the short term, the archdiocese faced two lawsuits totaling $155 million from alleged clergy sex abuse victims. In the long term, the church faces unknown potential liabilities. Sixty other claims are pending.

The archdiocese, largely through its insurers, had already paid more than $50 million to more than 100 sex abuse victims. The insurers -- claiming the management of the archdiocese should have done more to prevent the abuse -- now balk at paying additional settlements and judgments.

Vlazny considered a host of bad choices and, by his lights, chose the least bad one. He may yet be proved correct. But few doubt that he has taken an enormous gamble, one that will reverberate around the country as cash-strapped dioceses grapple with the consequences of clergy sex abuse and their inept and potentially criminal response to that evil.

The risks are evident. In a July 6 letter to Portland’s 300,000 Catholics, Vlazny said that under canon law he has “no authority to seize parish property” or to use the faithful’s earmarked donations to pay judgments or settlements. That may be true, but it’s also irrelevant.

Canon law has no more standing in a federal bankruptcy proceeding than the bylaws of any corporation, which is to say none.

“The operation of our parishes and schools will continue as usual,” Vlazny wrote. Well, maybe.

In fact, by requesting protection from creditors under Chapter 11, the archdiocese risks every piece of property it owns or controls and every dollar in its investment and banking accounts. Its 124 parishes, nine hospitals, eight homes for the aged, three high schools, 41 elementary schools, and least $150 million in liquid assets can be thrown into a mix that will ultimately result in a court-sanctioned settlement with creditors.

One of the court’s first tasks will be to evaluate the value of these holdings and, given the sometimes complicated legal arrangements, who actually “owns” them. But everything is fair game and the ultimate outcome is both unknown and unknowable.

Chapter 11 proceedings are court-supervised negotiations. They bring coherence to a litigious process that, from the archdiocese’s perspective, was spinning out of control. Those with claims against the archdiocese must now come forward and state them, which will define the extent of the archdiocese’s exposure.

There’s also an element of fairness to the process. Those with “like claims” -- victims of clergy sex abuse for example -- will receive similar compensation. These awards will be less than a single abuse victim might have received prior to the bankruptcy filing, but the result will be that all victims will be compensated.

Claimants and the archdiocese will come up with restructuring plans, which the court will examine, adjust and ultimately approve. It will be a lengthy and contentious process subject to appeal all the way to the U.S. Supreme Court.

Further, Chapter 11 is a transparent process. In bankruptcy proceedings, there are no “confidentiality clauses” of the kind some dioceses have used in civil case settlements to hide their culpability. Here, again, everything is at the discretion of the court. If the judge wants to examine the merits of the outstanding claims against the archdiocese (and it’s hard to see how she wouldn’t, given how central they are to the archdiocese’s fiscal condition), the court has an unmitigated right to review the documents underlying the claims. Those documents will be made public.

Consequently, the bankruptcy case in Portland may offer the public the opportunity to examine documents related to church handling of the sex abuse crisis. Not since a Massachusetts court ordered documents related to the Boston archdiocese’s clergy abuse malfeasance unsealed has the public had a comparable chance to examine how church leaders acted toward the priest predators in its ranks and the victims who sought compensation.

In the meantime, the court leaves day-to-day control of the archdiocese’s affairs to the archbishop and his staff, though any significant financial decisions (including whether to pay the archdiocese’s employees) must first be approved by the bankruptcy judge. But if the court finds fault with the archdiocese’s response to its inquiries or its administration of church assets, the court could appoint a trustee to oversee the business operations of the church.

Given the history of cover-ups, incompetence and malevolence demonstrated by bishops around the country in their management of the sex abuse crisis, it’s tempting to question the motivations behind Vlazny’s decision. But it hardly seems likely that seeking federal bankruptcy protection was, in his judgment, anything other than the best option among some very bad choices.

Yet to voluntarily relinquish matters of church governance to the government -- a dangerous and disturbing practice that risks the independence religion needs to be truly free -- is an ominous decision. The implications, particularly if other dioceses follow suit, are potentially grave for both church and state.

National Catholic Reporter, July 30, 2004